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Behavioral and personnel economics

Articles in behavioral economics discuss the emotional and cognitive factors that influence the decisions of actors, in particular employers and employees. Personnel economics analyzes the internal organizational strategy of the firm and the human resource management practices chosen to pursue that strategy.

Giving workers control over their working hours
increases their commitment and benefits firm performance

Allowing workers to control their work hours
(working-time autonomy) is a controversial policy for worker empowerment,
with concerns that range from increased shirking to excessive
intensification of work. Empirical evidence, however, supports neither view.
Recent studies find that working-time autonomy improves individual and firm
performance without promoting overload or exhaustion from work. However, if
working-time autonomy is incorporated into a system of family-friendly
workplace practices, firms may benefit from the trade-off between (more)
fringe benefits and (lower) wages but not from increased productivity.

Family firms offer higher job security but lower wages
than other firms

Family firms are ubiquitous in most countries. The
differences in objectives, governance, and management styles between those firms and
their non-family counterparts have several implications for the workforce, which
scholars have only recently started to investigate. Family firms offer greater job
security, employ different management practices, have a comparative advantage to avoid
conflicts when employment relations are more hostile, and provide insurance to workers
through implicit contracts when labor market regulation is limited. But all this also
comes at a cost.

Workers participating in firm-sponsored training
receive higher wages as a result. But given that firms pay the majority of
costs for training, shouldn’t they also benefit? Empirical evidence shows
that this is in fact the case. Firm-sponsored training leads to higher
productivity levels and increased innovation, both of which benefit the
firm. Training can also be complementary to, and enhance, other types of
firm investment, particularly in physical capital, such as information and
communication technology (ICT), and in organizational capital, such as the
implementation of high-performance workplace practices.

Job satisfaction is important to well-being, but
intervention may be needed only if markets are impeded from improving job
quality

Many measures of job satisfaction have been
trending downward. Because jobs are a key part of most people’s lives,
knowing what makes a good job (job quality) is vital to knowing how well
society is doing. Integral to worker well-being, job quality also affects
the labor market through related decisions on whether to work, whether to
quit, and how much effort to put into a job. Empirical work on what
constitutes a good job finds that workers value more than wages; they also
value job security and interest in their work. Policy to affect job quality
requires information on the cost of the different aspects of job quality and
how much workers value them.

Successful policies for helping the unemployed need to
confront the adverse effects of unemployment on feelings of life satisfaction

Many studies document a large negative effect of
unemployment on happiness. Recent research has looked into factors related to impacts on
happiness, such as adaptation, social work norms, social capital, religious beliefs, and
psychological resources. Getting unemployed people back to work can do more for their
happiness than compensating them for doing nothing. But not all unemployed people are
equally unhappy. Understanding the differences holds the key to designing effective
policies, for helping the unemployed back into work, and for more evenly distributing
the burden of unemployment resulting from economic restructuring.

Firms can benefit by hiring employee referred
candidates; however, there are potential drawbacks that must be
considered

Companies frequently hire new employees based on
referrals from existing employees, who often recommend friends or family
members. There are numerous possible benefits from this, such as lower
turnover, possibly higher productivity, lower recruiting costs, and
beneficial commonalities related to shared employee values. On the other
hand, hiring through employee referrals may disadvantage under-represented
minorities, entail greater firm costs in the form of higher wages, lead to
undesirable commonalities, and reflect nepotism. A growing body of research
explores these considerations.

Tournaments can outperform other compensation schemes such as
piece-rate and fixed wage contracts

Tournaments are commonly used in the workplace to determine
promotion, assign bonuses, and motivate personal development. Tournament-based contracts can
be very effective in eliciting high effort, often outperforming other compensation contracts,
but they can also have negative consequences for both managers and workers. The benefits and
disadvantages of workplace tournaments have been identified in an explosion of theoretical,
empirical, and experimental research over the past 30 years. Based on these findings,
suggestions and guidelines can be provided for when it might be beneficial to use tournaments
in the workplace.

Some people would be happier if they were
required to stay in school longer or search harder for a job while
unemployed

Standard economic theory suggests that
individuals know best how to make themselves happy. Thus, policies designed
to encourage “better” behaviors will only reduce people’s happiness.
Recently, however, economists have explored the role of impatience,
especially difficulties with delaying gratification, in several important
economic choices. There is strong evidence that some people have trouble
following through on investments that best serve their long-term interests.
These findings open the door to policies encouraging or requiring better
behaviors, which would allow people to commit to the choices they truly want
to make.

Understanding how employment tribunals make
decisions can guide reforms of employment dispute settlement

Employment tribunals or labor courts are
responsible for enforcing employment protection legislation and adjudicating
rights-based disputes between employers and employees. Claim numbers are
high and, in Great Britain, have been rising, affecting both administrative
costs and economic competitiveness. Reforms have attempted to reduce the
number of claims and to improve the speed and efficiency of dealing with
them. Balancing employee protection against cost-effectiveness remains
difficult, however. Gathering evidence on tribunals, including on claim
instigation, resolution, decision making, and post-tribunal outcomes can
inform policy efforts.

Challenging jobs and work incentives induce
workers to use their skills but make life difficult for managers

Organizational characteristics and management
styles vary dramatically both across and within sectors, which leads to huge
variation in job design and complexity. Complex jobs pose a challenge for
management and workers; an incentive structure aimed at unlocking workers’
potential can effectively address this challenge. However, the heterogeneity
of job complexity and the inherent difficulty in devising a correct set of
incentives may result in misalignment between job demands and incentivized
behaviors, and in complaints by employers about the lack of skilled
workers.